Willis Group Holdings Ltd



|Willis Group Holdings Ltd. |(WSH-NYSE) |$39.29* |

Note: This report contains substantially new material. Subsequent reports will have changes highlighted.

Reason for Report: 1Q13 Earnings Update

Prev. Ed.: May 2, Flash update on 1Q13 Earnings Results

Brokers’ Recommendations: Neutral: 64.3% (9 firms); Positive: 28.6% (4); Negative: 7.1% (1) Prev. Ed.: 12; 3; 1

Brokers’ Target Price: $40.70 (↑ $3.80 from last edition; 10 firms) Brokers’ Avg. Expected Return: 3.6%

*Note: Though dated Jun 28, 2013, share price and brokers’ material are as of Jun 11.

Note: The tables below for Revenues, Margins, and Earnings per Share contain fewer brokers’ material than that used in the Valuation table and PMES section. The extra figures in the Valuation table and PMES section come from reports that did not have accompanying spreadsheet models.

Portfolio Manager Executive Summary

Willis Group Holdings Limited (WSH) is an insurance broker. The company reports its business in three segments: Global, North America, and International. Willis' international footprint is understated in its revenue mix mainly due to its strategic minority stake in Gras Savoye, the largest insurance broker in France, the largest European insurance market.

Almost 64.3% of the firms in the Digest group covering Willis Group had a cautious outlook, while 28.6% conferred a positive rating on the stock and the remaining 7.1% rated the stock negatively. Of the 14 firms covering the stock, 10 provided target price ranging from $33.00 (16% downside from the current price) to $46.00 (17.1% upside from the current price).

Neutral or equivalent outlook – 9/14 firms or 64.3%: The cautious firms expect expenses in 2013 to rise and thus earnings to weaken due to reinvestment made by Willis to drive growth in the face of global economic unrest. EBITDA margins are expected to erode considerably in 2013 and improve slightly in 2014.

They expect Willis’ to grow organically with some support from its International and Global segments. They expect the North America segment to take another 12-24 months to catch up with its peers in terms of organic growth. The firms, however, are optimistic that over time, as the performance of the North America segment improves and economic conditions stabilize, growth will gradually gain pace, eventually minimizing the gap between Willis Group Holdings and its peers. At the same time, they are of the opinion that this improvement is unlikely before 2014. They also believe that Willis represents a somewhat unimpressive investment case as a result of low acquisitions leading to constricted top and bottom line figures.

Firms believe Willis is positioned to reclaim its top‐tier status among the insurance brokers, but given the lack of visibility on future earnings growth, firms prefers to remain on the sideline.

Buy or equivalent outlook – 4/14 firms or 28.6%- The firms recognize that the company is almost stagnant in comparison to its competitors, which however can restrict the downside and hence buy time for new management to come up with a more competent arrangement. The firms are optimistic about the new CEO, Dominic Casserley who is expected to focus more on strategic moves than operations to improve the present situation of the company.

Negative or equivalent outlook– 1/14 firm or 7.1%- The firm is of the opinion that though the recently declared change in leadership could benefit the company, the transition will not be easy owing to the potential risks to the upcoming term earnings. However, it believes that the benefits can only be reaped in the future.

It believes that further reinvestment and controlled cost-savings are necessary to amend the situation.

Jun 28, 2013

Overview

Key investment considerations as identified by the analysts are as follows:

|Key Positive Arguments |Key Negative Arguments |

|Growth Opportunities |Competitive Position |

|The company has a global presence and can capitalize on opportunities |The company is a player in a highly competitive brokerage landscape, where|

|offered. |new and existing competitors are vying for market share. |

|It is focused on organic growth, client service, and operating |The industry is subject to fluctuations in insurance premiums and inherent|

|efficiencies. |cyclicality in the industry, as its peers lower their prices to gain |

|Fundamentals |market share. |

|It has a strong cash flow, an active share repurchase program, and a good |Fundamentals |

|dividend yield. |The company is exposed to foreign exchange risk, attributable to |

|With the HRH acquisition, the company attained the highest level of client|significant international operations. |

|retention. |Softening market trends would adversely affect revenues. |

|Improving Property and Casualty segment and improving interest rates. |Commercial lines price competition may impact revenue growth and operating|

|It has shown mid-single digit organic growth in Global Specialties |margins. |

|segment, which has contributed substantially to its growth. |The persistent sluggish performance of the North American segment hampers |

| |the overall results of the company. |

London-based Willis Group Holdings Ltd. (WSH), is a global insurance broker, developing and delivering professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world to clients in various industries, including aerospace, marine, construction, and energy industries. In its capacity as an advisor and insurance broker, the company acts as an intermediary between clients and insurance carriers by advising clients on risk management, helping them determine the best means of managing risk, and negotiating and placing insurance risk with insurance carriers through its distribution network. WSH divides its operations into three segments – Global, North America, and International.

For more information on the company, visit its website at

Note: The company’s fiscal year references coincide with the calendar year.

Jun 28, 2013

Long-Term Growth

The firms believe that sluggish economic conditions coupled with Willis’ decelerating pricing conditions will restrict the company’s organic growth in the near future. The transformation of the current situation will not be hassle free and even the appointment of Dominic Casserley as the CEO may not help the cause. At the same time, it is expected that although near-term margins could be pressurized by investments undertaken by new management, yet going forward, revenues and margin growth will excel.

Based on the current weak scenario at the North America segment, the firms do not expect any recovery before a couple of years. However, once this segment begins to improve, its performance combined with moderate expense growth is expected to drive profitability for the company.

The firms believe that Willis' focus on emerging economies will provide significant growth prospects in the long run.

Jun 28, 2013

Target Price/Valuation

|Rating Distribution |

| Positive |28.6%↑ |

| Neutral |64.3%↑ |

| Negative |7.1%↓ |

| Avg. Target Price |$40.70↑ |

| Digest High |$46.00↑ |

| Digest Low |$33.00 |

| No. of the analysts with target price/Total |10/14 |

Risks to the target price include economic downturn, P&C rate softening, restrained inorganic growth, increase in perks and compensation paid by the company due to increased headcount, risks related to exchange rate fluctuations and peer pressure, sluggish growth, margin compression, lower retention, and the Stanford litigation.

Recent Events

On Apr 30, 2013, Willis Group Holdings Plc reported first-quarter 2013 adjusted net income of $1.46 per share, surpassing the Zacks Consensus Estimate of $1.31 per share. Results also exceeded the year-ago net income by 10.6%.

Total revenue in the quarter was $1.1 billion, up 3.8% year over year due to higher commissions and fees (up 4.1% year over year). Results were in line with the Zacks Consensus Estimate.

Dividend Update

In Apr 2013, the board approved a quarterly cash dividend of $0.28 per share, representing a year-over-year hike of 3.7%. Willis will pay the dividend on Jul 15, 2013 to shareholders of record as on Jun 28, 2013. The annualized dividend comes to $1.12 per share.

Financial Position

Willis exited the quarter with cash and cash equivalents of $531 million, up 6.2% from 2012-end level.

Total debt increased 2.1% from to $2.39 billion as of Mar 31, 2013 from $2.34 billion as on Dec 31, 2012.

Debt-to-capital ratio of the company improved 180 basis points to 55.9% in the quarter.

Revenue

Total revenue in the quarter was $1.1 billion, up 3.8% year over year due to higher commissions and fees (up 4.1% year over year). Results were in line with the Zacks Consensus Estimate.

Provided below is a summary of revenues as compiled by the Zacks Digest:

|Revenue ($ in million) |1Q12A |

|Copy Editor |Neelanjan Barua |

|Content Ed. | |

|Lead Analyst | Tanuka De |

|QCA | Tanuka De |

|No. of brokers reported/Total | 14/14 |

|brokers | |

|Reason for Update | Earnings |

| | |

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June 28, 2013

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